Exclusive: EC confirms it will adopt ESMA level II draft legislation
01 August 2018 Brussels
Image: Shutterstock
The European Commission (EC) has confirmed that it intends to adopt, with amendments, the draft regulatory and implementing technical standards (RTS) (ITS), submitted by the European Securities and Markets Authority (ESMA) for the Securities Financing Transaction Regulation (SFTR).
The European Commission director general Olivier Guersent confirmed its intentions in a letter to ESMA's chair Steven Maijoor.
Although the EC confirmed the adoption of ESMA’s level II draft legislation, it stated that it reserves the right to make a particular change in the future to mandate branches to use legal entity identifiers.
ESMA has stated it also reserves the right to make a particular change in the future to mandate branches to use legal entity identifiers, even though the EC states that only it has such a right.
Specifically, the EC referenced the details of securities financing transactions to be reported to trade repositories in accordance with Articles 4(9) and 4(10) of Regulation (EU) 2015/2365 (SFTR).
It also referenced amendments, accordingly, the ITS with regard to the details to be reported to trade repositories in accordance with Article 9(6) of Regulation (EU) No 648/2012 (EMIR).
The announcement said: “The [EC intends] to endorse with amendments those draft RTS and ITS submitted by ESMA [...] it was, therefore, necessary to make a number of clarifications and slightly restructure parts of the draft standards.”
At the beginning of July, Market FinReg revealed that it had been in discussion with the EC as part of the ongoing enforcement action that it had launched against the commission.
Market FinReg advised firms to “ignore industry gossip” suggesting that SFTR would be changed significantly by the EC.
According to Market FinReg, the announcement means that “the EC must have a compelling reason to overrule ESMA’s market expertise”.
Market FinReg explained that the next steps, as stated in Article 10, mean ESMA has six weeks to rework and deliver its formal opinion to the EC.
After receiving ESMA’s amended draft RTS within the six-week period, the EC may amend the draft RTS on the basis of the authority’s proposed amendments or adopt the RTS with the amendments it considers relevant.
Market FinReg analysis suggested: “In other words, the commission has ultimate say in what it adopts, however, it is duty bound by article 10 to adhere to this formal process. The EC must immediately forward the adopted legislation to the parliament and council for final approval.”
The analyses urges companies to “get cracking”. It said: “SFTR level II is now all but official. There are no unknowns.”
“SFTR is the most complex and arduous reporting regime ever imposed on the industry by some considerable margin. The measure will be adopted by Q1 2019 making Q1 2020 the go-live date.”
Commenting on the announcement, Seb Malik, head of financial law at Market FinReg, said: “The EC’s announcement that it intends to adopt ESMA's level II draft legislation as is should have come as no surprise. We have been advising clients this all year.”
“The EC told us so last month and we reported this back to the industry via the press. We’re delighted, all the same, as firms can now knuckle down to implementation for an expected go-live date of Q1 2020.”
Read Market FinReg’s full analysis here.
The European Commission director general Olivier Guersent confirmed its intentions in a letter to ESMA's chair Steven Maijoor.
Although the EC confirmed the adoption of ESMA’s level II draft legislation, it stated that it reserves the right to make a particular change in the future to mandate branches to use legal entity identifiers.
ESMA has stated it also reserves the right to make a particular change in the future to mandate branches to use legal entity identifiers, even though the EC states that only it has such a right.
Specifically, the EC referenced the details of securities financing transactions to be reported to trade repositories in accordance with Articles 4(9) and 4(10) of Regulation (EU) 2015/2365 (SFTR).
It also referenced amendments, accordingly, the ITS with regard to the details to be reported to trade repositories in accordance with Article 9(6) of Regulation (EU) No 648/2012 (EMIR).
The announcement said: “The [EC intends] to endorse with amendments those draft RTS and ITS submitted by ESMA [...] it was, therefore, necessary to make a number of clarifications and slightly restructure parts of the draft standards.”
At the beginning of July, Market FinReg revealed that it had been in discussion with the EC as part of the ongoing enforcement action that it had launched against the commission.
Market FinReg advised firms to “ignore industry gossip” suggesting that SFTR would be changed significantly by the EC.
According to Market FinReg, the announcement means that “the EC must have a compelling reason to overrule ESMA’s market expertise”.
Market FinReg explained that the next steps, as stated in Article 10, mean ESMA has six weeks to rework and deliver its formal opinion to the EC.
After receiving ESMA’s amended draft RTS within the six-week period, the EC may amend the draft RTS on the basis of the authority’s proposed amendments or adopt the RTS with the amendments it considers relevant.
Market FinReg analysis suggested: “In other words, the commission has ultimate say in what it adopts, however, it is duty bound by article 10 to adhere to this formal process. The EC must immediately forward the adopted legislation to the parliament and council for final approval.”
The analyses urges companies to “get cracking”. It said: “SFTR level II is now all but official. There are no unknowns.”
“SFTR is the most complex and arduous reporting regime ever imposed on the industry by some considerable margin. The measure will be adopted by Q1 2019 making Q1 2020 the go-live date.”
Commenting on the announcement, Seb Malik, head of financial law at Market FinReg, said: “The EC’s announcement that it intends to adopt ESMA's level II draft legislation as is should have come as no surprise. We have been advising clients this all year.”
“The EC told us so last month and we reported this back to the industry via the press. We’re delighted, all the same, as firms can now knuckle down to implementation for an expected go-live date of Q1 2020.”
Read Market FinReg’s full analysis here.
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